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Third Quarter 2009 Earnings
The Dow Chemical Company

October 22, 2009

Quarterly Earnings Conference Call/Webcast
With Investors, Financial Analysts and the Media

Remarks By:
Andrew N. Liveris, Chairman and CEO
Geoffery E. Merszei, Executive Vice President and CFO
Howard Ungerleider, Vice President, Investor Relations

Note: The following statements contained in this document involve risks and uncertainties that may affect the Company's operations, markets, products, services, prices and other factors as discussed in filings with the Securities and Exchange Commission. These risks and uncertainties include, but are not limited to, economic, competitive, legal, governmental and technological factors. Accordingly, there is no assurance that the Company's expectations will be realized. The Company assumes no obligation to provide revisions to any forward-looking statements should circumstances change, except as otherwise required by securities and other applicable laws.

The following is a summary of prepared remarks made during Dow's conference call/Webcast concerning its quarterly earnings on October 22, 2009. The news release and financial statements are also available on www.dow.com.

H. Ungerleider:

Good morning everyone and welcome. As usual, we're making this call available to investors and the media via Webcast. This call is the property of The Dow Chemical Company. Any redistribution, retransmission, or rebroadcast of this call in any form without Dow's express written consent is strictly prohibited.

On the call with me today are Andrew Liveris, Dow's Chairman and CEO; Geoffery Merszei, Dow's Executive Vice President and Chief Financial Officer, and David Johnson, Director in Investor Relations.

Around 6:30 this morning, October 22, our earnings release went out on PR Newswire and was posted on the Internet on Dow's website, dow.com. We have prepared some slides to supplement our comments on this conference call. The slides are posted on our website on the Presentations page of the Investor Relations section or through the link to our webcast.

As you know, some of our comments today may include statements about our expectations for the future. Those expectations involve risks and uncertainties. We can't guarantee the accuracy of any forecasts or estimates, and we don't plan to update any forward-looking statements during the quarter. If you'd like more information on the risks involved in forward-looking statements, please see our SEC filings. In addition, some of our comments may reference non-GAAP financial measures. A reconciliation to the most directly comparable GAAP financial measure and other associated disclosures are contained in our earnings release or on our website. Our earnings release as well as recent SEC filings are available on the Internet at dow.com.

The agenda for today's call is on slide 3.

Now, I will hand the call over to Andrew.

A. N. Liveris:

Thank you, Howard, and good morning everyone.

The third quarter was another quarter of continued improvement for the Company, and we made meaningful progress on a number of fronts:

• We delivered sequentially better results for the third quarter in a row driven in part by our recently acquired business units that captured early cycle growth, and a strong rebound in demand in emerging geographies;
  • Operating earnings of 24 cents per share were, once again, improved versus the prior quarter, reflecting the benefits of our broad geographic presence and vast portfolio, which enabled us to capitalize on markets that are showing an economic rebound.
  • Specific areas of strength include Electronics and Coatings, where government stimulus spending is spurring domestic demand in China and other Asian economies;
• We achieved pricing power in the quarter, with price up 6% on a sequential basis;
• While volume was flat in China versus last quarter, on a year-over-year basis, volume grew an impressive 10%;
• Significantly, we generated more than $600 million in cash from operations in the quarter;
• Our global operating rate improved 3 points to 78 percent, reflecting both rapid actions to rightsize our manufacturing footprint as well as improved economic conditions;
• We also reduced structural costs by more than $1 billion year to date, and we are now at more than 110% of the 12-month cost synergy run-rate goal for the integration…in just six months since we closed the acquisition.
• We also closed two divestitures in the quarter, and we did so at very good multiples, generating nearly $1.5 billion in combined gross proceeds from the sale of TRN and Optimal. And, with the sale of Morton Salt closing on Oct 1 for $1.7 billion in gross proceeds, we completely repaid our bridge loan 90 days ahead of our goal.

So as you can see, this was another quarter marked by strong execution, tight business management and focus on delivering against our stated goals.

Emerging geographies played an important role in our performance this quarter - particularly in Greater China, Southeast Asia, India, Latin America and the Middle East, which all showed more robust growth.

In China, government stimulus spending helped spur demand for everything from appliances to automobiles.

Here are some examples of the sequential volume growth we experienced in China, in particular:

• Electronic Materials was up 15%
• Coatings and Infrastructure was up 16%
• Automotive was up 5%, and
• Polyethylene was up 10%.

Brazil was another bright spot, with volume growth of 18 percent versus last quarter.

So as you can see, both China and Brazil have rebounded quickly. We are seeing similar robustness in India, and in other emerging geographies.

Now, challenges certainly remain, particularly in the mature economies such as those of the United States and Western Europe.

In these areas, the economic recovery remains somewhat muted at this point.

In the U.S., this is due to high unemployment and reduced consumer spending that is creating a drag on economic recovery.

More on this later.

Our vast end-market reach in many applications and industries gives us a unique view into the global economic recovery, as we see virtually all sectors from many perspectives and points of view - and by this I mean by geography, industry and end-market use.

We've had in place a robust tracking mechanism since the beginning of the year, the output of which you can see here.

This June versus September comparison shows that demand destruction, for the most part, has ended, and recovery has started.

The good news is our strong global presence and broad market exposure continue to bolster our business as overall economic recovery begins. Plus, we are in key value chains and not overly-exposed to any in particular.

And demand recovery, highlighted in green, is now taking place in a number of key sectors where Dow is well positioned.

As I said, our new business portfolio was one of the key drivers of our success in the quarter.

Let me now provide a few, high level details per operating segment about what drove performance in the quarter.

Higher growth, higher margin businesses such as Electronics and Coatings were significant contributors to our ability to capture early-stage growth.

Consider EBITDA margins of more than 30% in Electronic and Specialty Materials, with total EBITDA and margins both improving on a year over year and a sequential basis.

Foundry utilization rates in the quarter were more than 90 percent, as semiconductor production increased.

In Specialty Materials, the home and personal care sectors were bright spots, helped by share gains and end-markets that have been generally less impacted by the recession, as were the products of Dow Water and Process Solutions which reported a modest improvement in sales due to higher shipments of reverse osmosis membranes for large projects, mostly offset by lower demand from industrial segments.

Dow Corning also delivered a significant improvement in its results in the quarter due to a broad-based demand improvement, both geographically and in end-markets, including coatings, advanced materials, electronics, and life sciences.

In Coatings and Infrastructure, margins also expanded in Coatings, up by about 4.5 percentage points versus a year ago, reflecting stabilization in the sector.

Improvements have been seen in all regions for both architectural and industrial coatings, especially relative to the first quarter lows.

Business results in Dow Building and Construction improved sequentially, driven by the slow rebound in commercial construction, notably in North America, as well as in Europe and Asia Pacific.

Several of the businesses I just discussed play a key role in our overall growth strategy, and originate from our acquisition of Rohm and Haas - which are now part of our Dow Advanced Materials division.

In Health and Agricultural Sciences, Dow AgroSciences had a challenging quarter.

In addition to seasonal weakness, weather, oversupply of key agricultural chemicals such as glyphosate, and lower farm commodity prices negatively impacted quarterly results on a year over year basis, particularly in Latin America, where shifting commodity prices favored soybean versus corn.

This shift unfavorably impacted us in two ways:

• Dow has a much larger share of corn in the region, so we sold less seed in the quarter, and
• Soy also requires fewer inputs, so our agricultural chemicals business was also negatively impacted.

These are short term challenges, since we believe the long-term fundamentals for the Agricultural sector remain firmly intact.

That's why we continue to be investors in this vital sector.

People will always need food, and increasingly care about nutrition. In fact, our agricultural R&D expense is up ($16 million) year-on-year.

Notably, consumers are demanding healthier foods that are lower in saturated fat or higher in fiber content.

Dow is responding, with zero trans-fat Omega-9 Canola and Sunflower Oils made from NEXERA™ canola and sunflower seeds developed by Dow AgroSciences. Global demand for grain is increasing as well, as the growing middle class in emerging economies demands better nutrition.

And, farmers are looking to improve their crop yields to meet this increased demand. They are turning to Dow AgroSciences for new seeds that enhance yields and are insect resistant and herbicide tolerant.

This is why we continue to invest for growth in our Seeds and Traits platform.

In fact, our breakthough SmartStax™ technology achieved two significant regulatory milestones in the quarter and it remains on track for a 2010 commercial launch.

We also achieved double-digit market segment share in cotton in the U.S., reflecting investments we have made to grow share in this high-value segment, where adoption of biotechnology traits have been the most rapid;

And these are just a few of the many breakthroughs in Dow AgroSciences' robust technology pipeline, which will contribute to earnings growth in the future.

In Performance Systems, Automotive Systems showed a rebound in the quarter, as the benefits of various government stimulus programs kicked-in.

Monthly volume gains in the quarter were driven by the stimulus programs in China, Brazil, the U.S. and Germany.

In the U.S., the "Cash-for-Clunkers" government incentive program reduced excess vehicle inventory and OEM's responded by increasing production late in the quarter.

Dow Elastomers also reported strong demand from the automotive sector as well as sales into food packaging applications, which have shown resilience throughout the recession.

In Performance Products, government stimulus programs fueled sequential volume growth in Polyurethanes.

However, margins were impacted by the steep increase in raw material costs.

This also impacted Epoxy in the quarter, where low industry operating rates hindered our ability to raise prices.

However, Epoxy did report strong sequential volume growth in key end-use applications, as the build-out of 3G mobile networks in China continued at a brisk pace.

Also in China, consumer electronics such as PCs, car electronics and LCD televisions rebounded from earlier lows.

As I wrap up the discussion on businesses in our Advanced Materials Division, Dow AgroSciences, as well as our Performance Systems and Performance Products divisions, let me emphasize that these businesses are all linked by a common theme of innovation and differentiation, where technology is a key enabler to deliver solutions with higher and more sustainable margins.

These divisions form the core of our transformed company, and they all performed admirably in the quarter.

Our Basic Plastics franchise, especially Polyethylene, is also showing tremendous resiliency during the recession, with strong price increases in all geographic regions.

Certainly, the recent favorable cost position for both raw materials and energy on the U.S Gulf Coast, when compared with higher cost locations in Europe and Asia, have contributed to the strength of Polyethylene, in particular.

This allowed for a competitive global position, resulting in ample export opportunities throughout the quarter.

And EQUATE, and our new Kuwait JV, The Kuwait Olefins Company, also delivered improved results sequentially, reinforcing our asset-lite strategy.

Our Basic Chemicals segment faced headwinds in the quarter.

As you know, chlor-alkali is under pressure, both on the VCM side related to construction declines and on the caustic side, due to weak fundamentals in the alumina and pulp and paper industries.

The good news here is we are taking swift action to rightsize our manufacturing footprint to match true demand, and we continue to position these businesses to feed our higher value, higher margin downstream Performance businesses.

That's a brief overview of our operating segments. I want to reinforce what we have been saying all year. We are focused on the items we can control, we are global and diverse and are positioning our new portfolio for robust growth, and we are delivering on our commitments..

Geoffery has more to say on all of these points.

G. E. Merszei:

Thank you, Andrew.

Let me begin by reviewing our financial results in the quarter.

Starting on slide 10, you can see that third quarter sales were $12 billion dollars, down 32% from a year ago, but up 6% from the second quarter.

Volume declined 9% year on year, and was flat with the second quarter.

This year over year volume decline shows a marked improvement versus second quarter, when we reported a 20% decline in volume versus the prior year, with a positive trend emerging.

Excluding Dow AgroSciences, which as you know, is a seasonal business, volume actually increased by more than 3% versus the second quarter.

Price was down 23% versus the year ago period, but up 6% sequentially.

These price gains helped to fully offset a sequential increase in feedstock and energy costs of more than $600 million.

We continued to make excellent progress on cost cutting, achieving $380 million in savings in the quarter.

Equity earnings were up 84% sequentially, driven by much better results at Dow Corning and EQUATE.

EBITDA excluding certain items was $1.6 billion, down from $1.8 billion in the year ago period, on a pro forma basis and flat sequentially.

If you exclude Ag, we delivered a solid improvement - up 9% versus the second quarter.

Interest expense declined by $37 million sequentially, reflecting a reduction in the outstanding balance of our bridge loan in the quarter.

And this expense will continue to come down as we make further progress in deleveraging the balance sheet.

On slide 12, you can see our EPS recon for the quarter.

On a GAAP basis, we earned 63 cents per share.

Excluding certain items and discontinued operations, we earned 24 cents.

Certain items included 46 cents in gains from the sale of our stake in the Optimal joint venture, and our interest in Dutch refinery TRN as well as a penny of EPS impact related to discontinued operations in the quarter.

Certain items also included a loss of 3 cents related to transaction and integration costs, and a loss of 3 cents from the early extinguishment of debt.

These results were also favorably impacted by a lower than expected tax rate in the quarter, which on an EPS basis equates to roughly 5 cents.

Our tax rate has fluctuated to a greater degree this year due to a number of factors.

These include the acquisition of Rohm and Haas, which added more than 250 legal entities where we realize gains and losses.

In addition, the significant improvement in equity earnings which as you know, are recognized on an after-tax basis, can heavily influence our effective tax rate in a given period.

If you look at our long term historical tax rate average, however, we believe 25% is a good number to use on a go-forward basis.

Taking all of this into account, operating earnings were substantially higher versus the second quarter.

In fact, taking into account the higher than normal expenses related to the integration and the bridge amortization fees, our operating results would have been higher.

Now let's go into some of the details of what drove our top line performance, starting on slide 13.

The largest sequential price gains were in Basic Plastics, which was up 13% and Performance Products which was up 6%.

On a geographic level, Europe was up 13%, and North America was up 5% compared with the prior quarter.

Turning to volume trends on slide 14, you can see that volume was flat versus the second quarter, but up more than 3% when you exclude Dow AgroSciences.

There were a number of bright spots that drove this sequential improvement, including:

• Electronic and Specialty Materials, up 7%
• Performance Products, up 10%, and
• Coating and Infrastructure, up 4%

Taking a geographic look, certain regions outside of North America and Europe posted very strong growth versus the prior quarter.

For example:

• Latin America was up 12%; and
• IMEA was up 5%.

On a sequential basis, volume was flat in Asia Pacific.

This was due to seasonal declines in Ag, and weak demand in many of our Basics businesses reflecting continued softness in China's export economy. Polyethylene was a notable exception, with volume up 10 percent.

The good news is stimulus spending aimed at domestic demand favorably impacted some of our highest growth businesses, such as Electronics and Coatings.

This contributed to a year over year volume increase of 10% in China overall.

Dow's broad global footprint, which is a key competitive advantage for the Company, enabled us to capture this growth.

Another important indicator of economic recovery is shown in our operating rate on slide 15.

As you can see, this increased 3 points to 78%.

This marks the third consecutive quarter of improvement in this important measure.

Our third quarter rate also surpassed the operating rate from the third quarter of 2008 and … the full year 2008 average.

Another notable contributor to results in the quarter were equity earnings, which improved substantially.

Results were up 84% to $224 million sequentially, driven by strength in Dow Corning, where third quarter performance was very solid.

Silicone sales were up sequentially by more than 18% with a substantial improvement in margins and earnings.

While year to date silicone sales are still below 2009 levels, Dow Corning is reporting a broad based improvement in demand in many end markets, such as Coatings and Advanced Interface Materials, Electronics and Life Sciences.

Silicone demand has historically been a very good indicator of economic activity, particularly in the U.S.

Another strong contribution came from EQUATE, which benefited from feedstock costs that are much lower than in other parts of the world.

It is also worth noting that equity earnings are now rapidly approaching our more normalized level of approximately $250 million per quarter.

Turning now to our focus on cost control on slide 17, we reduced structural costs by $380 million in the quarter. Pro forma SG&A was down more than $100 million on a year over year basis, reflecting on-going cost management actions.

Capital spending year to date is $894 million on a pro forma basis, and we remain on track to achieve our 2009 goal of $1.4 billion in capex spending.

As you can see on slide 18, we have made great progress against our goal of capturing $1.3 billion in cost synergies from the Rohm and Haas acquisition.

We have achieved an end of third quarter annualized run rate of more than $875 million.

This puts us more than 110% toward our 12-month run-rate goal in just six months.

We continue to make excellent progress in all of the key synergy categories, and have realized $433 million in savings year to date.

These savings are comprised of the following, as shown on slide 19……

• $213 million in Purchasing savings from leveraging supplier contracts between Dow and Rohm and Haas;
• $88 million from Corporate Functions, where shared services have been optimized;
• $79 million from accelerating existing Rohm and Haas restructuring programs; and
• $53 million of savings in Manufacturing, Supply Chain, and other areas.

Looking at the details on an annualized run rate basis, you can see our progress on slide 20.

Purchasing synergies continue to ramp up nicely, already surpassing the 12 month run rate goal.

It is important to note, however, that savings in Purchasing go far beyond raw material purchases, with approximately two-thirds achieved through reductions in other areas.

For example, cost savings from MRO (Maintenance, Repair and Operations), Logistics and Corporate Services totaled $255 million on a run rate basis.

Speaking to where cost synergies are making the most impact, the vast majority of the savings, in the range of 80 to 85%, are showing up in cost of sales.

From an operating segment view, the majority of the savings can be found in the combined Performance and Advanced Materials portfolio.

Turning now to slide 21 and our restructuring efforts, here again we have excellent progress to report.

As you can see, we have delivered more than $220 million in realized savings year to date, and have achieved an end of third quarter annualized run rate of more than $400 million.

We remain ahead of our goal here as well.

And regarding workforce reductions on slide 22, while these decisions are always difficult, they are a key part of our total cost savings effort and we have already achieved 77% of our stated goal.

In summary, we are well on our way to achieving all of our synergy and restructuring cost savings.

Now, I'd like to turn to some other significant financial achievements, as shown on slide 23.

We completed the sales of OPTIMAL, TRN and Morton Salt for net proceeds of $2.7 billion which enabled us to repay the bridge ahead of our goal.

The repayment of the bridge is a substantial milestone for the company. Because with the repayment comes the elimination of the debt to EBITDA covenant.

Now, our balance sheet is left with only one meaningful financial ratio covenant across all of Dow's remaining debt - that is, a 65% debt to total capital requirement which is in our $3 billion revolving credit facility.

As of the end of the third quarter, we had a gross debt to total capital ratio of 52.7%.

After taking into account the more than $2.5 billion in cash on our balance sheet - which is higher than usual, but we believe prudent in these economic times - we have a net debt to total capital ratio of 49.8% as of the end of the third quarter.

If you consider the proceeds from the sale of Morton Salt, which occurred immediately following the close of the quarter, our net debt to total capital ratio would have been just under 48%.

I am also pleased to report that the Dow name remains strong in the financial markets.

Our $18 billion in fixed assets, which have no encumbrances, is just one of the many reasons that enabled us to successfully return to the commercial paper market in the quarter.

In fact, as of the close of business yesterday, we have more than $1 billion of CP outstanding.

Cash flow from operations improved by more than $400 million versus the prior quarter.

And if you consider the impact of non-recurring cash payments primarily related to the integration of Rohm and Haas, this number would have been approximately $200 million higher.

Finally, we kept tight control on working capital, with DSI at 66 days, which was flat with second quarter, while we reduced DSO by two days to 45 in the same timeframe.

Now, I'll turn the call back to Andrew for our outlook and some comments about our upcoming investor day.

A.N. Liveris:

Thank you, Geoffery.

The economic outlook for the rest of 2009 appears to be stabilizing with strong growth in Asia Pacific, especially China, and other emerging geographies like Brazil, India and Southeast Asia.

We also believe the global economy is now on firmer footing.

Here are a few facts:

• World trade is beginning to pick up as imports and exports appear to have touched bottom in the second quarter.
• China, Korea and Taiwan report renewed growth in exports, with Korea's improvement led by increases in semiconductors, autos and LCDs, and
• U.S. industrial production rose for the third straight month in September.

And there are more such proof points.

However, we believe that the pace of recovery will be slower in Europe and the U.S., the latter in particular having high unemployment for a sustained period throughout 2010, which will continue to be a drag on consumer spending.

We see the continuation of economic rebound at a stronger pace in the emerging world which we are capitalizing on today and which should continue to benefit us as a broader global economic recovery occurs.

We remain very well positioned, especially now with the integration of Rohm and Haas proceeding smoothly and successfully.

In particular, the continued sequential margin strength, and year-on-year increases we have seen in Dow Advanced Materials show the early cycle earnings power of our new portfolio.

So in summary, market stability has improved, but we continue to remain cautious about the ability of some economies to sustain growth. This is especially true of the U.S. and Europe, and until these economies return to "normal," we believe global growth will be muted.

Therefore, as stated all this year, our 2009/2010 operating plans do not count on material improvements in market conditions.

We remain tightly focused on those factors we can control, such as costs, capital and cash flow management.

Dow continues to benefit from the smooth integration of Rohm and Haas and the decisive actions we took to accelerate our restructuring efforts and cost synergies.

We have also made significant improvements to our balance sheet, strengthening our financial structure and providing more flexibility in how we execute any further divestitures, which will be made on a timely and strategic basis.

Going forward, we will continue to manage our business with the same dedicated focus in the quarters ahead and are confident that we are firmly on track to position Dow as an earnings growth company.

Speaking of growth, I would like to spend a few minutes talking about the tremendous progress we have made in shifting Dow's focus to one of a customer-driven, growth oriented company. We believe that moment has arrived, and it is about deploying the right organization with the right skills for the appropriate business opportunities to unleash the earnings power of the new Dow.

Dow has long deployed three distinct business models very successfully. These are

1. A highly integrated, low-cost model that is ideally suited to our Basics portfolio.

Polyethylene and our chlor-alkali businesses are great examples of this model at work.

2. A Performance-oriented model that's focused on product leadership and technology differentiation - think about our world class Polyurethane and Epoxy franchises, and

3. Our Market-driven model, that's customer-centric and solutions-based.

Our Formulated Systems, Dow Water and Process Solutions and Dow AgroSciences are all excellent examples of our successes in this business model.

And with the acquisition of Rohm and Haas, our new Dow Advanced Materials division brings additional breadth and depth to this part of the Company.

As we have said in the past, these business models are supported by a lean corporate center. On this point, we're set to announce a new strategic partnership that will make our already lean and efficient corporate center even more so.

We'll share more details on this news, along with the many innovative technologies, products and businesses that will drive our future earnings growth at our upcoming investor day on November 12.

This will be a great opportunity to hear directly from our executive leadership about our transformation into a market-driven, performance, agrosciences and advanced materials company.

We will also detail more expansively what we think Dow is capable of delivering in terms of growth and provide granularity on the normalized earnings power of our new portfolio.

A key feature of this event will be an innovation-themed Gallery Walk which will highlight the many products and technology platforms we have underway that will fuel earnings growth in the future.

Our reinvigorated innovation engine, and its alignment to key megatrends such as Energy, Transportation and Infrastructure, Consumerism, and Health and Nutrition will be on display.

These will be hosted by business and technology leadership from many areas of the Company, giving you the opportunity to speak directly with Dow's key innovators.

As you can tell, I'm very excited about this event and hope to see you there.

Now, I'll turn the call back to Howard.

H. Ungerleider:

Thanks, Andrew.

That wraps up our prepared remarks.

We would like to thank you for joining us this morning and appreciate your interest in The Dow Chemical Company.

We look forward to speaking more with you at our Investor Day on November 12, and again on our fourth quarter earnings call in January, 2010.

Thank you very much.